USD Outlook Remains Bullish as Retail Crowd Fades Momentum
The Dow Jones-FXCM US Dollar Index (ticker: USDOLLAR) rallied to a fresh yearly high of 10,141 and our proprietary Speculative Sentiment Index certainly reinforces a bullish outlook for the greenback as the retail trading crowd fades the underlining strength in the reserve currency.
As the developments coming out of Europe continue to drag on market sentiment, the drop in risk-taking behavior has certainly increased the appeal of the greenback, and the reserve currency looks poised to track higher in the days ahead as the flight to safety gathers pace. In light of the headline-drive market, we should see risk sentiment continue to dictate price action across the major currencies, and retail traders are certainly running the risk of getting caught on the wrong side of the market as they raise bets for a short-term correction.
At the same time, we saw a fairly muted reaction to the FOMC Minutes as the central bank reiterated its cautious tone for the world’s largest economy, but it seems as though the Fed is moving away from its easing cycle as there appears to be a growing rift within the committee. In turn, we should see the upward trending channel in the USDOLLAR continue to take shape, and the index may post fresh highs in the week ahead as the economic docket is expected to instill an improved outlook for the U.S.
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--- Written by David Song, Currency Analyst
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